I was beginning to wonder if the bounce scenario I laid out in the last recap was going to come to pass. The market was acting very heavy the last three sessions and it seemed that the market would work off its oversold condition by going sideways. I'm not sure if it was the bullish analyst talk about GS and other financials or just hopeful bulls rushing in ahead of earnings that caused today's rally. I suspect it was the latter given the broad advance -- all sectors were up today except for hospitals and transport which were down slightly.
The Nasdaq continues to look the best of the major indices. It was able to recover from early selling and climb back over its 50-day moving average.
The technical pictures for the S&P 500 and Russell 2000 are very similar. Both are in well defined downward-sloping channels. But before they can attempt to break free of those channels they will need to conquer their 50-day moving averages.
A lot of upgrades today but the "ups" for the S&P and Russell are very solid yet IMHO. I'll feel better about them once (if) they break out of their downward sloping trend channels.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Up(+) | Up(+) |
| Intermediate | Up(+) | Down | Down |
| Short-term | Up(+) | Up(+) | Lat(+) |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I'm simply using the indices' relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
Mike, I've been reading your blog for some time. It's been a great help this year as I'm attempting a transition into full-time trading. Thanks.
Quick question. In your April 26, 2006 post about arriving at 100r, you include .3% to .7% as your r value during that time. Can you help me understand this? I've read your post on r values and understand r as "risk per trade" but am still a little unclear as to the significance of the numbers above. I am a new convert to the percentage risk model so I have no problem with the approach, just trying to get some clarity, (ordering Van Tharp's book tonight). Thanks again.
Chris Curry
Mike - I've been looking around your blog and want to learn trading: where is square ONE? DVDs? Books? Training classes?
Any advice or suggestions appreciated!
Garrett
Your 875 call got my attention. I think I'll be dropping by more often. Nice job.
Chris,
Let's say my account equity was $100,000. So all I'm saying is that if my R was 0.3% is that I was risking $300 per trade. So I'd size my positions and place my stops such that I'd lose a maximum of $300 per trade. Does that clear it up?
Garrett,
It's tough to say but I'd start with some books. Some of the ones listed over in the left column are good ones to start with. I think 'How to Make Money in Stocks' is a great introduction. From there check out one of Van Tharp's books and/or "Trading for a Living" (or one of Elder's later books) and/or "The Master Swing Trader" and/or "Mastering the Trade".
If you then decide to take a course I think you'd get more out of it with a little book knowledge behind you.
Mike, thanks, that clears it up. I was confused by the small % size of your R (0.3 to 0.7). Do you normally stay below 1% R?
Chris,
Yes, I always stay at or below 1%. That's just about where my stomach starts to hurt!
Mike-thanks for feedback. I started reading "Come into My Trading Room" by Alexander Elder, but its dry and slooooow going... i've watched some youtube videos and looking for a free seminar but i'm betting they will just try to sell a system or software or some BS.
I feel like i need to get in the driver's seat and click and peck and poke around on a real system (a simulator or online free trial or sometime) to get a feel for things, see things happen, learn.
Am i thinking too far ahead? Books just dont show the real ins and outs of doing the job itself and tools of the trade...
Garrett
It's a good idea to combine simulation with your other learning. Dr. Brett wrote a lot about simulation in his book "Enhancing Trader Performance" and I'm sure he has a lot of info on that topic on his site as well.
Garrett,
I've been trading since beg this year and have read several books (including 2 of Elders). The most useful one I have read is by far Sam Weinstein's Secrets for Profiting in Bull and Bear Markets. It's much more focused on swing and position trading (ie def not daytrading). It's clearer than Elder's and does't go round the houses so much. Don't know if anyone else has read it and has opinions...
The one must-read part of Elder's book (as you've got it) is on risk management, imo.